FINANCIAL FOCUS
KRISTI TREVINO Financial Advisor Edward Jones
FINANCIAL TIPS for the self-employed
Being self-employed has some benefits : You get to choose your own hours , you don ’ t have to count “ vacation days ” and you ’ ll never worry about getting downsized . On the other hand , you ’ re truly on your own – there ’ s no employer-sponsored retirement plan and no benefits package . So , if you ’ ve recently started a business or become a “ gig worker ,” possibly due to the COVID-19 pandemic , what can you do to get on the road to financial security ?
There are several steps you can take , including the following :
• Establish a budget . When you ’ re self-employed – and especially when you ’ re first starting out – you need to keep tight control over where your money is going . So , establish a budget and stick to it .
• Open a retirement plan . As a self-employed individual , you can choose a retirement plan , such as a SEP-IRA , a SIMPLE-IRA or an “ owner-only ” 401 ( k ). When your earnings are limited , you can contribute modest amounts to any of these plans , but when your income rises , you can boost your contributions . While these retirement plans have some things in common , including tax-deferred growth of earnings , they differ in other areas , such as contribution limits , and one plan may be more suitable for you than another , depending on whether you have employees . You may want to consult with a financial advisor to determine which plan is best for your needs .
• Build an emergency fund . When you work for a business or other organization , your income is predictable – but that ’ s usually not the case when you ’ re self-employed . And when your earnings are uneven , you can be vulnerable to financial stress when you face an unexpected expense . To help protect yourself from these threats , try to gradually build an emergency fund containing a few months ’ worth of living expenses , with the money kept in a liquid , low-risk account .
• Pay down your debts . Some debts , such as loans to help your business , may be unavoidable – and even productive . But other debts , especially those that can ’ t be deducted from your taxes and carry a high interest rate , are far less useful , so you may want to
set up a repayment plan . With your other expenses , you might not be able to whittle these debts down as fast you ’ d like , but , over time , your efforts can pay off .
• Put money aside for taxes . Because no employer is withholding taxes from your paychecks , you will likely have to make quarterly estimated payments . Plus , you ’ re responsible for all your Social Security taxes , which , if you worked for someone else , would be split between you and your employer . To make sure you ’ ve got enough money available to pay your taxes , you might want to set up a special account – one that ’ s not used for any other purpose .
• Get proper insurance . Depending on the nature of your work , you may or may not need some type of business insurance , but if you have a family , you should certainly consider the need for life insurance , and you may also want to consider disability insurance . Self-employment can be quite fulfilling – and you ’ ll find it even more rewarding when you make the right financial moves .
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor . Edward Jones , Member SIPC
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